In May, base metals struggled to hold onto initial gains seen at the beginning of the month. Copper hit a one-month low at the end of May with the three-month price sliding to $6,083/mt, while aluminum was at its weakest in 14 months at $1,738/mt, having hit a five-month high earlier in May at $1,937/mt. In fact, aluminum joined nickel as the worst performing LME contract of the month.

Certainly, prices reacted negatively to macro-economic factors. Renewed dollar strength in early May weighed on LME contracts, with the US currency rallying and finding support from the Federal Reserve Market Committee’s reassurance that the US central bank would likely raise interest rates in late 2015. Indeed, the US dollar index was up 2.5% in May, having dropped some 3.8% in April.

Meanwhile, Greek uncertainty weighed on the euro with conflicting reports over the month about progress towards a bailout agreement between Greece and its creditors, while the Yen was also under pressure as a result of the Bank of Japan’s long-term quantitative easing program.

But metals weren’t just down on the dollar, as demand across key regions also remained weak, despite some signs of improvement. Metal demand in China had been subdued for much of the first quarter of 2015, and although it appears to have picked up slightly in recent weeks, the global market has had to come to terms with lower consumption this year from the world’s largest metal consumer, as the government looks to maintain stability while the domestic economy continues to transform. China’s official and non-official manufacturing PMI data has remained either side of the 50 level this year, sending a mixed message to the market. However, the last three readings of the country’s official PMI have come in above the 50 level, indicating some stability. While analysts see this as a sign that stimulus measures are having some impact, others have not ruled further measures. China cut interest rates for third time in six months in May.

Meanwhile, US ISM manufacturing data in May saw a small rebound for the sector after a weak first quarter, recovering from a near two-year low which should signal increased demand from the world’s second largest consumer of metals. In addition, the eurozone manufacturing PMI came in at 52.2 in May, up marginally from 52 in April. According to data provider Markit, the upward trend in total new orders and new export business suggests output growth should continue in the coming months. So while global metal demand remained weak in historical terms, there were some signs of improvement.

However, supply factors also contributed to weaker base metal prices in May. Excess capacity has seen metal inventories remain at high levels in key regions and while some destocking is taking place, lower overall demand is likely to mean it will take longer for inventories to be drawn down. Although LME aluminum, zinc, lead and tin stocks have decreased this year, copper and nickel have continued to build. China has also increased exports of some metal products, which has further weakened sentiment and added to oversupply issues in some regions. It seems there will need to be further destocking before we see evidence of restocking and a sustained increase in base metal prices.

According to the LME’s Commitments of Traders Report (COTR), money manager positions for most metals turned bearish over May with a reduction in net length for all metals except tin. Net length for copper fell for the second consecutive week by 10,744 lots (26%) to 31,147 lots on May 29 from a net length of 41,891 lots May 22. This fall was driven by a significant growth in the gross short position with an increase of 12,824 lots, the first week-on-week increase in the short position for copper in May.

Elsewhere, net length for aluminum fell 24,736 lots (25%) May 29 at 72,488 lots, compared to 97,224 May 22. This was driven by another large increase in short selling at 42,680 lots. The net long position for nickel also dropped 2,780 lots (24%) to 8,776 lots on May 29.

So May was something of a bearish month for metals with many market participants now looking to the second half of 2015 for improvement. Analysts are looking for signs of restocking and for some markets to show evidence of a shift to deficit, or at best a more balanced fundamental outlook. On the plus side, there has been evidence of dip-buying when prices have traded near historical lows, and with PMIs ticking up (albeit something of a soft rebound), perhaps the second half will present a brighter outlook for base metals. Guess we’ll have to wait until St Leger Day.